Government’s philanthropy on borrowed money is inviting the 90s nightmare20/03/2008

Nearly a decade back, one of the iconic figures of the Indian software industry was once asked about the most important reason for the incredible growth story of the Indian software industry. In his reply he had stated that probably the most important reason was that there’s no Ministry of Software. Juxtapose this with the experience of some of the IIPM Think Tank members in their recent GOTA visit to some of the cleanest and most professionally run cities of Western Europe. In those cities like Paris, Brussels and Helsinki where it becomes an awesome task to find a speck of dust, where civic administration is more professional and transparent than India’s blue chip companies, where no killer blue line buses exist, where civic authorities literally wash the city every day, and where the best of the Fortune 500 companies have significant government stake, and where by law no one would be allowed to die on the road untreated even if that person doesn’t have money (the government bears all the expenditures). In those places anyone traveling from this part of the world might often get shocked to see banners stating ‘Say no to capitalism’.

Be it in Helsinki where on a 2 euro ticket one can travel as many times on a tram, bus or even a steamboat ride within an hour, or in Paris where one can buy a litre fuel at the price of half a litre of Pepsi or Coke and where such is the purity of the water supplied by the municipality that the water of the sink is good enough to drink, one then realises unlike in this part of the world, all these are essentially the reflection of the performance of government. In those countries perhaps there’s not much fanfare about the budget and the allocation. Over there it is perhaps taken for granted that allocation would marginally increase every year but what matters most and for what the government can take credit for is the performance and not the increase in allocation it has made in the budget.

Returning a day just before the Union budget was presented, it was surprising to see the pink and not so pink newspapers flushed with news of how much increase in allocation the government might or might not make in the social sector. That made one wonder that for all the allocation of billions of dollars made every year for all these sectors, where does all that money go and why can’t Indian government deliver something like the cities of Paris and Helsinki can?

This year’s budget was expected to be as populist as has always been. On an election year hardly any government in India is expected to be proactively reformist in nature with a vision for the future. And to expect the same from a government which gets typified by the threats from its left allies every time it even mentions the word reform is a utopian illusion. But no one expected the government to play with the country’s coffers to such an extent for its self serving goals for the next election. In the early nineties too quite a few times loans were waived off for farmers and once for Punjab, but those figures of Rs.8,000-10,000 crore started looking pittance with the generosity shown by P. Chidambaram by announcing a loan waiver of a whopping Rs.60,000 crore.

How they derived that nightmarish figure and how many of the poorest and most marginalised farmers of India who are still at the mercy of the village money lenders would benefit from it is a matter that the government knows the best and something that it would not reveal under the garb of parliamentary secrecy. But in one shot the Non Performing Assets (NPA) of the Indian banking system goes up by 4%. It was nothing less than a cruel joke on all the efforts of the Indian banking system and especially the Public Sector Banks who literally have been having blood in their mouth trying hard for half a decade to reduce their non performing assets and increase the Capital Adequacy Ratio (CAR) to meet the Basell norms in their quest to be more strong bank. But the Black Friday undid it all. While the government was quick to state that measures will be taken to address the liquidity issue of the banks and that they would not be burdened with the entire liability of the amount, yet whichever path the government takes to address this nightmarish issue, the outcome will be negative. If suppose the government prints money to repay the banks then even a kindergarten kid of new age India would be able to take a workshop of how the increased money supply would lead to inflation.